Equities extended their rally with major indices posting gains last month, though volatility remained elevated as markets contended with multiple headwinds.
Concerns over AI displacement sparked a sell-off in software stocks following announcements from AI developers like Anthropic of tools capable of automating numerous professional services. The US Supreme Court struck down the administration’s use of IEEPA to impose tariffs, prompting a pivot to blanket tariffs for 150 days under alternative legal authority. Geopolitical tensions escalated as US and Israeli forces launched strikes on Iran – a developing situation with potentially significant ramifications.
This environment drove further regional divergence in equity performance. US equities lagged as investors rotated out of expensive technology stocks into asset-intensive sectors such as energy and utilities. Our position in the iShares Core FTSE 100 ETF gained 7.1% as UK equities benefited from the rotation away from AI stocks and rising energy prices. Our emerging markets exposure delivered strong results, with the iShares EDGE MSCI Emerging Markets Value Fund up 12%, driven primarily by allocations to Korea and Taiwan. Korean equities surged on the back of memory chip stocks and positive sentiment around governance reforms, while Taiwanese markets gained from robust technology hardware performance
In fixed income, developed market government bond yields declined amid heightened volatility and benign inflation data – UK inflation fell to 3% in January, the lowest level since March 2025. We maintain our position in inflation-linked bonds as protection against an unexpected rise in inflation. Corporate bonds proved resilient despite stress in private credit markets, with higher quality issuers outperforming. Our Xtrackers USD Corporate Bond ETF, which invests across investment-grade bonds, returned 3.3%.
Within Alternatives, our iShares Physical Gold ETC rebounded 6.9% after an early-month correction, supported by lower bond yields and elevated geopolitical risk. Our Diversifying Assets allocation also performed well in the volatile environment, with the AQR Style Premia Fund – which invests across equities, fixed income, commodities, and FX – returning 3.9%.
